Dynamic Business: Loosening the connection

Vodafone's Craig Jones (left) and Matt Williams.

Intense competition has put pressure on telecoms, writes Bill Bennett.

Smartphones are everywhere. Mobile phone use is increasing. Exciting new services continue to appear. You'd think everything was rosy in the telecommunications industry; but that's not the case.

Craig Jones, the CEO's business manager and head of external communications at Vodafone New Zealand, calls it the "elephant in the room". He says the industry as a whole is declining: "IDC [an American market research, analysis and advisory firm] has forecast it will decline at between 2.5 and 2.8 per cent until 2018. It's staggering. We talk to a lot of our stakeholders, particularly those in government and they all think the market is growing."

It's understandable people get that impression. Vodafone consumer director Matt Williams says there's an irony: "People are now connected more of the time, they use their smartphones more. The service is an essential part of life and yet it is in decline."

Competition on a number of fronts lies behind that decline. Williams previously worked as the group commercial manager for Vodafone in Europe where he says he became familiar with intense price competition. When he came back to New Zealand his job involved benchmarking local prices against Vodafone companies in countries like Spain and Italy.

Williams says he found Vodafone New Zealand prices are now on a par with those countries, but they have fallen from a higher point and at a faster speed than elsewhere. In part this is a consequence of the Commerce Commission regulating mobile termination rates and the entry of 2degrees into the market. He says there were big changes at Telecom NZ, now Spark, which has stepped up its market ambition.

There are also external threats to the industry. In the past mobile phone companies earned money from selling voice minutes and text messages with a little data on the side.

Thanks to the so-called OTT (over-the-top providers) that's now changed to the point where data is becoming the main game. OTT providers include companies like Apple, Google and Microsoft which have their own messaging apps that bypass traditional telecommunications networks. iPhone owners can talk to each other using FaceTime and iMessage, Google has Hangouts and Chat, Microsoft runs Skype. Social media networks like Twitter and Facebook also bypass voice and text.

At the same time, there's been an explosion in smartphone apps. Most phone owners have a number installed on their devices. They buy them in app stores, not from telecom companies. Overall, the total amount of money people spend on telecoms is more or less constant, with carriers like Vodafone now having to share the pool of revenue with others.

The good news for Vodafone is customers need to buy data to use these services. That's where the focus is moving as mobile phone carriers shift from minutes and texts to gigabytes. Many of the more expensive mobile plans effectively come with unlimited text and voice calls.

Williams says Vodafone is New Zealand's leading smartphone company and aims to stay at the top by "creating the right platform for those apps. We are no longer in the business of selling minutes or messages but in the business of selling the quality of connection. Our message is that your apps and services will work better on Vodafone."

The company doubled down on its early investment with the 4G network, which in a recent survey was shown to be the fastest in the world. This has paid off. Williams says Vodafone has seen a 100 per cent year on year growth in mobile data use. Jones says the next stage is the roll-out of the new 700Mz network using the spectrum purchased from the Government after the analogue TV system was shut down.

"We already have a site in operation where a single tower serves customers over a 35 to 50km radius. This compares with maybe 7km on the older towers. That's going to enable further new services."

Vodafone gears up for Internet of Things

One application that stands to gain a great deal from the 700Mz towers is machine-to-machine communications, sometimes called M2M.

This technology, linking devices rather than people to the mobile network, forms the basic of the so-called internet of Things. It promises to be big. New Zealand has roughly five million mobile phone connections. When devices start talking to one another there will be at least 10 times as many connections.

Williams says Vodafone already has one million connected M2M devices in New Zealand and the number is growing fast.

In the field M2M combines cellular networks with sensors, advanced robotics and automation. Many of these devices send data back to base for processing. There, sophisticated analytics turn raw data into usable information.

Vodafone's Craig Jones describes a New Zealand-developed application that uses sensors to track quad bikes working on farms and in other remote areas.

He says the sensors measure the bike's angle relative to the ground; if the bike tips, the application attempts to work out what is happening and can then alert emergency services to rescue the bike's rider using GPS to zoom in on their exact location.

Another project, Methminder, monitors rental properties checking for levels of toxins in the atmosphere. It's a cost-effective way landlords can check their properties are not being used as P-labs.

Jones says Vodafone is something of a pioneer in the area thanks to two trends playing to its strengths. First the company's cellular networks are becoming smarter and more capable.

Second, Vodafone's move into the enterprise space gives it access to the advanced technologies needed to capture remote data and then run the advanced analytics needed to make sense of the data.

He says: "It's a significant business for us. New Zealand is leading the world in some areas and that's something we're helping to drive.

"It sets the scene for another bout of disruption, this time we'll be driving it."